Question

Dove, Inc., had additions to retained earnings for the year just ended of $635,000. The firm paid out $80,000 in cash dividends, and it has ending total equity of $7.30 million. a. If the company currently has 670,000 shares of common stock outstanding, what are earnings per share? Dividends per share? What is book value per share? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. If the stock currently sells for $30.00 per share, what is the market-to-book ratio? The price-earnings ratio? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. If total sales were $10.6 million, what is the price-sales ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Answer (a) :

(1) Earnings per share = Total Earnings of the company / Number of shares outstanding

Total Earnings of the company = Retained Earnings for the year + Cash Dividends

= $635,000 + $80,000 = $ 715000

Number of shares outstanding = 670,000 ( given in question )

Therefore Earnings pes share = $ 715000 / 670000 =$1.07

(2) Dividends per share : Cash Dividends paid / Number of shares outstanding

Cash Dividends paid = $80,000 ( given in question )

Number of shares outstanding = 670,000 ( given in question )

Dividends per share = $80,000 / 670,000 = $0.12

(3) Book value per share : Total Equity of the Company / Number of shares outstanding

Total Equity of the Company = $ 7.30 million = $ 7300000

Number of shares outstanding = 670,000

Book value per share = $ 7300000 / 670,000 = $10.895 or $ 10.90 (rounded off)

Answer (b) :

(1) Market-to-book ratio = Market Price Per share / Book Value Per share

Market Price Per share = $ 30 ( given in question )

Book Value Per share = $ 10.90 ( calculated in part 3 of Answer a above )

Market-to-book ratio = $ 30 / $ 10.90 = 2.75 times

(2) Price-earnings ratio = Market Price Per share / Earnings per share

Market Price Per share = $ 30 ( given in question )

Earnings per share = $1.07 ( calculated in part 1 of Answer a above )

Therefore Price-earnings ratio = $30 / $ 1.07 = 28.04 times

Answer (c) :

Price-Sales Ratio = Market Price Per share / Sales Per Share

Market Price Per share = $ 30 ( given in question )

Sales Per Share = Total Sales of the company / Number of shares outstanding

Total sales = $10.6 million = $10600000 (given in question)

Therefore Sales Per Share = $10600000 / 670,000 = $ 15.82

Hence, Price-Sales Ratio =$ 30 / $ 15.82 = 1.896 or 1.90 times ( rounded off )